1992 (12) TMI 208 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity, legality, and propriety of the levy of sales tax on "works contracts".
2. Validity of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984.
3. Validity of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986, introducing section 3-B and the Fourth Schedule.
4. Validity of rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959.

Summary:

1. Constitutional Validity of Levy of Sales Tax on "Works Contracts"
The Court addressed the constitutional validity, legality, and propriety of the levy of sales tax on transactions known as "works contracts". The grievance of the assessees was common, focusing on the amendments introduced by the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984, and the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986, which introduced section 3-B and the Fourth Schedule to the main Act. The Supreme Court in [1989] 73 STC 370 (Builders Association of India v. Union of India) upheld the validity of the Constitution (Forty-sixth Amendment) Act, allowing states to levy sales tax on the price of goods and materials used in works contracts.

2. Validity of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984
The 1984 Amendment Act, which amended the definitions of "dealer", "goods", "sale", "turnover", and introduced the definition of "works contract", was upheld. The amendments were a sequel to the Constitution (Forty-sixth Amendment) Act, 1982, and were necessary to levy sales tax on the value of goods involved in works contracts. The challenge to these amendments was rejected, aligning with the Supreme Court's decision in the Builders Association case.

3. Validity of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986
Section 3-B of the 1986 Amendment Act levies tax on the turnover of transfer of property in goods involved in works contracts. The Court held that the word "turnover" in section 3-B should be read as "taxable turnover" to ensure the levy is on the value of goods involved in the execution of works contracts. The Court emphasized that the measure for the levy should be the value of the goods at the time of incorporation in the works. The provisions of section 3-B were deemed constitutionally valid.

4. Validity of Rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959
Rules 6-A and 6-B, introduced in 1984 and amended in 1986, were challenged for not providing proper deductions and exclusions for inter-State sales, sales in the course of import/export, and for imposing a flat rate deduction for labor and other charges. The Court found these rules unconstitutional and illegal, as they did not conform to the principles laid down by the Supreme Court in Gannon Dunkerley's case and Builders Association of India v. State of Karnataka. The rules were struck down, and any orders or actions based on these rules were deemed invalid.

Conclusion:
- The Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984, and the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986, were upheld as valid.
- Rules 6-A and 6-B were struck down as unconstitutional and illegal.
- The State was given liberty to enact appropriate legislation in accordance with the principles laid down by the Supreme Court.
- The Court did not express any view on the liability of assessees under the Act, de hors the impugned rules.